IPOs are signaling good news for investors

NYSE
president Tom Farley (R) congratulates Japan's Line Corp. CFO In
Joon Hwang (2nd L) and Chief Global Officer and co-founder Jungho
Shin (middle) and Chief Strategy and Marketing Officer Jun Masuda
(2nd R) after ringing the opening bell to celebrate the company's
IPO at the New York Stock Exchange (NYSE) in New York City, New
York, U.S. July 14, 2016.REUTERS/Brendan
McDermid

With
recent all-time highs in for the S&P 500, Dow Jones
Index, and Nasdaq Composite it'd be fair to question just how
much higher the indexes could go in the short-term.

According to Tom Leveroni at Nautilus Investment Research, based
on the new entrants into the stock market, there's still
room for the averages to climb.

"Another example of investors' increasing willingness to assume
risk is the surge in IPOs these past few weeks," wrote Leveroni
in a note to clients Monday. "The Bloomberg IPO Index (BIPO) is
up over 10% this month to boost its relative strength vs. SPX
above its two year downtrend."

Essentially, stocks making their debut are doing better than the
broader market. IPOs are typically risky investments since there
is no price or performance history for the firm.

Thus, as more people have an appetite for IPOs, it would appear
that they are willing to take on risk, which is usually seen as
good news for demand for stocks.

Based on Leveroni's research, there have been 8 times since 1994
in which the ratio of the BIPO index to the S&P 500 has
hit a 200-day high after not setting a record in the previous 200
days. In the three months after that happened, the S&P
500 has been higher seven out of the eight times with an average
gain of 4.93%.